WASHINGTON (CN) – A Wall Street trader drove down the price of Alliance Data Systems by 17 percent by spreading false rumors about its acquisition, and profited by selling short during the nosedive, the SEC said Thursday in filing and settling charges of securities fraud and market manipulation.
Paul B. Berliner, formerly a trader with the Schottenfeld Group, agreed to settle the charges without admitting or denying them, the SEC said.
The Commission said that on Nov. 29, Berliner sent instant messages to people at brokerage firms, hedge funds and elsewhere, stating that The Blackstone Group was revising its buyout offer for ADS from $81.75 per share to $70. The media picked up the reports.
“Heavy trading in ADS stock ensued, and within 30 minutes the false rumor had caused the price of ADS stock, trading at approximately $77 per share, to plummet to an intraday low of $63.65 per share – a 17 percent decline,” the SEC said in a press release. “In response to the unusual trading activity, the New York Stock Exchange temporarily halted trading in ADS stock. Later in the day, ADS issued a press release announcing that the rumor was false. By the close of trading, the price of ADS stock recovered to its pre-rumor price of approximately $77 per share. Berliner profited by short selling ADS stock during its precipitous decline.”
The settlement calls for Berliner to disgorge $26,129 he made during his brief spree, pay a $130,000 fine, and prohibits him from associating with brokers or dealers.